Question

If the forward rate is less than the expected future spot rate, you should sell forward...

If the forward rate is less than the expected future spot rate,

you should sell forward

you should buy forward

you should not change your behavior

foreign interest rates will change

Homework Answers

Answer #1

Answer -
Option - You should buy forward is correct.
Explanation -
Forward exchange rate is the rate of exchange at which bank agree to exchange one currency for another at a future rate.It is helpful to banks,MNCs , financial institutions to enter in to forward contract for taking the benefit of hedging purposes.
If the forward rate is less than the expected future spot rate the currency should purchase and sell it in future at forward premium.A forward premium is a condition at which forward future price of currency is greater than the spot price.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The forward foreign exchange rate A. Determines the future spot exchange rate. B. Is unaffected by...
The forward foreign exchange rate A. Determines the future spot exchange rate. B. Is unaffected by changes in interest rates. C. Is the ratio of equivalent spot amounts in each currency compounded to the forward maturity at the respective currencies' spot rates. D. Is the rate that ensures that future expected purchasing power will be in parity.
Suppose that for a certain commodity the forward price () is less than the expected future...
Suppose that for a certain commodity the forward price () is less than the expected future spot price ().  In this case, we can lock in an arbitrage profit by going long the forward contract. T OR F
Which Exchange Rate Forecast Technique Should MNCs Use? POINT: Use the spot rate to forecast. When...
Which Exchange Rate Forecast Technique Should MNCs Use? POINT: Use the spot rate to forecast. When a U.S.-based MNC firm conducts financial budgeting, it must estimate the values of its foreign currency cash flows that will be received by the parent. Since it is well documented that firms can not accurately forecast future values, MNCs should use the spot rate for budgeting. Changes in economic conditions are difficult to predict, and the spot rate reflects the best guess of the...
Which Exchange Rate Forecast Technique Should MNCs Use? POINT: Use the spot rate to forecast.  When a...
Which Exchange Rate Forecast Technique Should MNCs Use? POINT: Use the spot rate to forecast.  When a U.S.-based MNC firm conducts financial budgeting, it must estimate the values of its foreign currency cash flows that will be received by the parent.  Since it is well documented that firms can not accurately forecast future values, MNCs should use the spot rate for budgeting. Changes in economic conditions are difficult to predict, and the spot rate reflects the best guess of the future spot...
a. If the USDGHS spot rate is 4.5000, and its six-month forward rate has a forward...
a. If the USDGHS spot rate is 4.5000, and its six-month forward rate has a forward premium of 7%. The Chief financial officer of your MNC wants to know the one year forward rate of the USD?. b. If the spot rate of the USD is GHS4.5850, find the periodic as well as the annualized forward discount or premium if the 60-day forward rate is quoted as GHS4.6100 c. Distinguish between the following a) Put Option and a swap b)...
11. The yield-to-maturities on Treasury issues do not give a direct reading of future spot rates...
11. The yield-to-maturities on Treasury issues do not give a direct reading of future spot rates as: (a) not enough years of maturities are available. (b) there is no default risk measured. (c) most have coupon rates. (d) the treasury market is not large enough to draw conclusion (e) most of the securities are callable. 12. Under unbiased expectations theory, the expected future spot rate (a) is the mean of future spot rates. (b) is equal to the forward rate....
T or F: The market forward rate ALWAYS turns out to be the future spot rate....
T or F: The market forward rate ALWAYS turns out to be the future spot rate. T or F: It is much more important to convert costs of equity to global costs of equity than it is to convert costs of debt to global costs of debt. T or F: In international finance, marginal tax rates are preferred over effective tax rates.
Emily speculates on the currencies in the foreign currency exchange market. Currently the spot price for...
Emily speculates on the currencies in the foreign currency exchange market. Currently the spot price for the Danish krona is Dk199.87/$ and the 3-month forward rate is Dk198.53/$. Emily thinks the Danish krona will move to Dk198.00/$ in the next three months.What should Emily do? If Emily has $100,000 explain how much she can earn as profit? Show calculations. Specify the transaction such as buy/sell at forward/spot/ expected future spot rate.
A forward rate is the mathematical expectation of a future spot rate in risk neutral world....
A forward rate is the mathematical expectation of a future spot rate in risk neutral world. True False
A Japanese EXPORTER has a €1,000,000 receivable due in one year. Spot and forward exchange rate...
A Japanese EXPORTER has a €1,000,000 receivable due in one year. Spot and forward exchange rate data is given in the table:    Spot Rate 1-year forward rate Contract Size $1.20 =€1.00 $1.25= €1.00 €62.500 $1.00 =¥100 $1.20= €120 ¥12,500,000 The one-year risk free rates are i$ = 4.03%; i€ = 6.05%; and i¥ = 1%. Detail a strategy using forward contract that will hedge exchange rate risk. Group of answer choices Sell €1m forward using 16 contracts at the...